Building up a profit with components

“There are low digit margins for the system builders, but the retail space can get double digit margins. The same product can have different margin levels,” he said. “We take a value-add approach and people have been talking about that since PCs started. If you want to make the fat dollars you need to provide services.”

Integration and hardware upgrades are value-add services which become available due to making the initial component sale, said Hartin.

The tackling of margin issues in the components channel seems to require no black magic. It is just the old channel ethos of looking to add services and not just shifting boxing. Nothing new there.

Green IT focus

If there is one unavoidable issue in the IT industry at the moment it is surely Green IT. Vendors are scrambling to get their Green messaging to market, but the components space poses an interesting angle to the debate.

Both the development of components and the complete machine have traditionally centred on performance. This enhanced performance has often come at the expense of some serious power consumption. So how has the components channel reacted to the increased focus on Green IT?

“The Green message has been in the world for many years and it is a big topic today,” said AMD’s Leung. “IT firms needs to translate the Green message into more than just a Green message. Every single vendor talks about Green, but we need to talk about how this affects the cost of ownership.”

Intel’s Tapsas commented: “Green is a hot topic. We are seeing more focus on Green from the channel and end-users. People are now asking: what are your company policies when it comes to Green? We are working closely with our customers to offer sustainable products. Everyone has a role to play with Green, even the integrators.”

According to Gigabyte’s Chen, Green - especially energy saving to improve climate change - is the main focus for Gigabyte this year and moving forward.

“We try to make our products more energy efficient and work alongside firms like Intel and Western Digital. We are also trying to educate the resellers and end-users to adopt Green products,” said Chen. “Desktop component users want to buy performance. They also want to buy Green, but not sacrifice performance, so resellers need to provide Green products with the same performance. Everyone is talking about Green, so it is a good time to raise the importance of Green issues.”

The distributors are also keen to contribute around the Green issue, with Ortega proudly stating that in the third quarter of this year Tegatech’s offices will be fitted with solar panelling to help reduce its carbon footprint.

“While solar panelling is still considered an expensive solution, the overall benefit to the environment is too great too avoid any longer. As an IT distributor we are above average in our usage of electricity [and] we are taking all the steps within our means to ensure this usage does not impact on the environment excessively. Recycling boxes is something we’re [also] committed to.”

Hartin echoed the Green sentiment. “We have seen Green IT evolve for a number of years,” he said. “A couple of years ago there was strong push from the components vendors and this will continue to evolve. On the other hand we are seeing more powerful computers, but we have more efficient power supplies.

“Resellers are between a rock and a hard place. They have access to the components and have to respond to their customer base. If their customer base wants Green products, they will provide them. However, if the customer base is ignorant to the Green issue then resellers still need to make a sale,” Hartin added. “Distributors need to improve the education they offer and be vigilant to look for Green products to supply; and the vendors need to lift their games in terms of providing educating information.”

The two resounding issues of margin pressure and Green IT could be more closely linked than first thought. If the channel needs to boost profitability, then using an environmentally beneficial angle on sales could be the best way forward.

However, if end-users do not want to listen to a Green-focused pitch, it could make the job of resellers a lot more difficult. This all goes back to the notion of end-user education and, as the trusted advisor, it could be the reseller which forces the changing of the tides. But, should they manage to boost those tough component margins at the same time, I do not think many channel players will be complaining.